UPDATE 2-Russia's July oil output falls, seasonal factors blamed

Fri Aug 2, 2013 7:34am EDT

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* Russian oil production down 1 pct to 10.43 million bpd

* Led by seasonal decline from Gazprom

* Lower output from foreign partners also impacted

* Output still remains above Saudi Arabia's 9.65 million bpd (Adds details, analysts, background)

By Katya Golubkova and Vladimir Soldatkin

MOSCOW, Aug 2 (Reuters) - Oil output from Russia, the world's biggest producer, fell 1 percent in July from the month before, hit by lower production at Gazprom and a drop in output from projects with foreign partners, data from the Energy Ministry showed.

The decline could be a worrying sign for Russia, as it needs to grow production to maintain its share of supplies to Europe and ramp up output to China.

Despite the fall, Russian output was still above Saudi Arabia's 9.65 million barrels per day (bpd).

The decline in production to 10.43 million bpd in July from a post-Soviet high of 10.53 million bpd in June, was mainly due to seasonal factors, with a 17 percent fall in condensate production by Gazprom, analysts said.

Condensate, which can be transformed into gasoline or diesel among other products and is usually extracted along with natural gas, accounts for around 4 percent of Russia's total oil output. Natural gas production falls in the summer due to weak demand.

"In July 2012, there was the same result - a decrease of 10 percent (in Gazprom's condensate output)," said Andrey Polischuk, an analyst with Raiffeisen bank.

Another reason for the fall might be that several units at Gazprom's Surgut gas condensate stabilisation plant were under maintenance in July, the Energy Ministry's data showed.

Raiffeisen's Polischuk also pointed to an 11 percent drop in output from production sharing agreements (PSAs). The Energy Ministry did not break these down by projects, but Polischuk said their output has proved to be volatile in the past.

Russia introduced PSAs in the 1990s to attract foreign investors into its vast energy sector by providing a special tax regime. As the economy improved, Russia pulled back from such deals, but three remain - the Kharyaga project led by France's Total and the Sakhalin-1 and Sakhalin-2 projects, led by Exxon Mobil and Gazprom, respectively.

Polischuk said the role of condensate is gradually growing, especially for medium-size companies, as lower taxes are supporting its extraction. Condensate may be added to oil to boost its quality. Condensate accounts for a large part of Russia's No. 2 gas firm Novatek's business, he said.

In tonnes, Russia's crude production was 44.1 million last month. Natural gas production was flat month-on-month at 1.5 billion cubic meters per day.

GROWTH SOURCES

Russia plans to maintain oil production at over 10 million barrels per day over the next decade and recently offered tax breaks for tight oil extraction, whose recoverable reserves are seen at 500 million tonnes.

Stable, or better growing, production is essential for Russia's revenues, especially as state-controlled oil giant Rosneft recently agreed to double oil exports to China from the current 300,000 bpd.

Rosneft's output rose 2 percent to 3.87 million bpd month-on-month, supported by a 1.4 percent increase at its East Siberian Vankor field, the Energy Ministry data showed. Vankor, a key source of oil supplies to China, pumped an average 433,700 bpd last month.

Concerns have arisen, though, that the field may not perform as expected, as Rosneft had previously planned that Vankor would pump 25 million tonnes of oil this year, or 500,000 bpd.

Otkritie analysts Alexander Burgansky and Roman Odarich said in note earlier this week they were concerned about Rosneft's lack of confirmation on a conference call about when Vankor's 510,000 bpd plateau target would be reached.

"It appears that Vankor may be underperforming relative to earlier guidance," they wrote in the note.

Russia expects to launch the Trebs and Titov oil fields in West Siberia and the Prirazlomnoye offshore Arctic field this year, which will help to offset production falls at brownfield sites. (Reporting by Katya Golubkova and Vladimir Soldatkin; Editing by Megan Davies and Mark Potter)

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